Intel: Ignoring The Facts Can Cost Investors Money Even With A 4.40% Dividend Yield

As my readers know, I have been mulling over whether or not to sell my shares of Intel (NASDAQ:INTC). The most difficult decision many investors face is when to sell a stock. I find this decision to be a bit more difficult because I really like Intel.

That being said, I can no longer ignore the facts that I am confronted with. I will be selling all shares of Intel and removing the stock from the Team Alpha portfolio, on the next trading day.

The Issues That I Cannot Ignore

Intel has been one of those stocks that I have always wanted to love, and yet somehow it has never lived up to my own expectations. Obviously, the stock has made plenty of investors money, and with the really compelling dividend yield of 4.40%, dividend investors will groan, and once again tell me how nuts I am.

This decision is based on the total return of the stock, which has been negative for awhile now.

The dividend yield has increased because the share price has dropped. The share price has dropped to the point where it simply does not make sense to hold it just for the dividends any longer. The original share price that Team Alpha purchased the shares at was $23.00 (a drop of 15% as of now). With a dividend of $.90/share per year, the drop in price has already eaten up $2.70 per share in dividends.

Stocks go up and down, and obviously we should not make hasty decisions based on normal market fluctuations. That would be simply buying high and selling low. That is the path to investment failure. Intel is faced with core business risks that cannot be ignored, even if the company has begun to take steps to change. The biggest risk that Intel is facing is the rapid decline in sales of the personal computer.

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The drop-off has been dramatic since 2000. With the continued increase in smart-mobile devices and tablets, the PC has taken a back seat, and it does not seem to be slowing. If anything the trend is speeding up.

Since 2000, Intel has done just about everything right in its core business, maintaining its dominance of the market for PC microprocessors and putting substantial distance between itself and competitors in the market for server chips. And yet the company finds itself in a very tough position: computers are going mobile, and Intel's share of the microprocessor market is falling off a cliff.

The article further notes, that the mobile computing market is still relatively new and the growth is in that sector, not in the PC sector. Intel's decision to enter the market might be too little too late.

The company is finally entering the mobile game, but barely.The Linley Groupforecasts that Intel will grab 0.7 percent of mobile processor shipments in 2012. So far it has gotten away with this meager showing because the mobile chip market as a whole remains relatively small-it is forecast to be around $5 billion in 2012, compared to $31 billion for PCs and nearly $10 billion for servers. But as the PC market slows and the popularity of smartphones and tablets continues to balloon globally, Intel will have to adapt or be left behind.

Can Intel play catch up? Absolutely. The question is; how long will it take to significantly increase their market share to replace the rapid fall in revenues and earnings from the PC sector? I just do not know.

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Looking at this chart from MorganStanley, they project that smart-mobile devices will outstrip PC internet dominance within the next 6 months. I do not believe that Intel can ramp up its "Haswell" microprocessor to a level that can maintain the revenue and earnings rate to offset the decline of those basic ingredients, from the steep decline in the PC market.

If Intel cannot deliver the revenues and the profits, then I believe that the share price will continue to erode. I have no idea how long it will take Intel to reclaim the incredible impact it has enjoyed in the PC internet world, or even if they can at all.

Quite frankly, they are way behind the curve in the smart-mobile/tablet sector and they might never be on top again.

Here is a chart on the rapid rise of the tablet market:

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Devices being manufactured and sold for 2013 sales have very few Intel products within them. According to the article linked above, Intel accounts for only 7 tenths of 1% of the smart device market. Hardly a blip on the radar. According to this article, it appears that Intel's new "Haswell" product could be ensconced into the Apple (NASDAQ:AAPL) iMac for 2013.

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This might soften the blow a bit to Intel's top and bottom line, but frankly, will the iMac replace the smart-device assault on the PC? Does Apple even want to begin revamping the entire PC market given their own dominance in the smart-mobile/tablet market?

This still does not address the poor results that Intel has had in the smart-mobile/tablet sector, and it is my belief that the company might need to make an acquisition of an existing player in that market to, at the very least, compete. That is pure speculation of course, but I just cannot see the potential from within the company.

Perhaps Intel will surprise me and show rapid growth in the sector, but the facts do not support that. I believe that it could take a few more years just to catch up. That could mean another15% drop in the share price from its current level. If that occurs, I will be losing another $2.70 per share in dividends received just by the drop in the share price. Am I willing to lose $5.40 per share in dividends waiting for Intel to deliver some results? I am not.

I believe the cash from the sale of Intel shares can be redeployed into better investments, or even held as dry powder for other opportunities.

My Opinion

I like the company. I do not like the stock, nor the uncertainty that the company and the stock is facing.

One final chart:

I am not suggesting that anyone should sell the shares of Intel they might own. I am not suggesting that anyone should buy the stock either. My observations and opinions within this article are for everyone to consider. Please do your own research prior to making any decisions.

I believe Intel shares will drop another 15% in 2013.

Disclosure: I am long INTC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I will be selling all INTC shares during the next market day.

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